Pension funds' 13th-check dispute goes to Michigan Supreme Court

8:00 PM, March 5, 2014

Detroit Free Press Lansing Bureau

LANSING — Wayne County’s handling of a fund used to pay a “13th check” to retirees who receive monthly pension payments was argued today in front of the Michigan Supreme Court.

In 2010, the county capped the fund, known as the Inflation Equity Fund, at $12 million and shifted its resulting $32-million surplus to the main fund for the county’s defined-benefit pension plan, which was underfunded. The county counted that $32 million as part of its required annual contribution to the pension plan.

The trustees of the retirement system and the Wayne County Retirement Commission cried foul and sued, alleging the county violated a Michigan constitutional provision that protects accrued pension benefit.

The trial court ruled in favor of the county, but the Michigan Court of Appeals took the side of the retirees, saying the county’s action violated the Public Employees Retirement System Investment Act.

Questions the justices directed at attorneys during oral arguments Wednesday gave little indication how they might rule.

Phillip DeRosier, an attorney for the county, told the justices there is no violation of the constitution or the statute because “there was no transfer of plan assets — they, at all times, remained in the retirement system.”

The issuance of “13th checks” — bonus checks paid to retirees based on investment fund performance — have been in the news in connection with the bankruptcy of Detroit, where the city pension funds were underfunded but issued the bonus checks on a regular basis.

The retirement commission’s actuary said the main retirement fund would today be 90% funded, as opposed to 67%, had there never been a 13th-check program, DeRosier said in his brief.

The Inflation Equity Fund, created in 1986, “has thus caused the health of the retirement system and the constitutionally guaranteed benefits it provides to deteriorate, requiring Wayne County to make up the resulting shortfalls through additional contributions from already-scarce county resources,” he said.

Marie Racine, attorney for the retirement fund and commission, told the justices the fund supporting the 13th checks is an accrued benefit retirees have come to expect.

Also, “the county writes only about the wrong $32 million — the money that was ‘moved’ rather than the money that was never paid,” Racine said in her brief.

“The county underpaid its minimum funding obligation by $32 million, using the 2010 ordinance as cover,” she said.

Also today, the Supreme Court heard arguments on whether Wayne County Circuit Judge Bruce Morrow has committed misconduct by repeatedly failing to follow state law, as alleged by the Judicial Tenure Commission, which wants him suspended without pay for 90 days.